Chapter 7 Bankruptcy: What It Is and How This Section Is Organized

What does Chapter 7 cover?

Chapter 7 is the liquidation chapter for individuals and businesses. The District of Maryland's bankruptcy court describes bankruptcy generally as federal law that helps people who owe more debt than they can pay, either by liquidating assets to pay debts or by creating a repayment plan. Chapter 7 is the liquidation route; Chapter 13 is the repayment route.

When you file, a bankruptcy estate is created and most of what you own at that moment becomes property of that estate under 11 U.S.C. § 541. A trustee is appointed to review it. You then claim exemptions to protect specific property, and whatever is not exempt can be sold for the benefit of creditors. At the end, the court considers whether to grant a discharge under 11 U.S.C. § 727, which releases you from personal liability for the debts covered by it.

The chapter is federal, so the structure is the same everywhere. What varies is the exemption law that decides how much property you keep.

• The estate is created at filing and includes most existing property interests (11 U.S.C. § 541)
• A trustee reviews the estate and administers any non-exempt property
• The court grants a discharge unless a ground listed in 11 U.S.C. § 727(a) applies

How do you know whether Chapter 7 or Chapter 13 applies to you?

The honest answer is that it depends on facts nobody can guess from a web page: your income, what you own, whether you are behind on a house or car, and whether you have filed before.

The federal forms make the income question concrete. The Southern District of Iowa's official instructions explain that an individual filing Chapter 7 must file Official Form 122A-1 to report current monthly income and compare it to the median income for their state. If income is not above that median, the second form is not required. If it is above the median, Official Form 122A-2 — the means test — applies, and depending on the result the U.S. trustee, bankruptcy administrator, or creditors can move to dismiss under § 707(b).

A motion to dismiss is not automatic denial. The same instructions note that the court decides, and that a debtor may instead choose to proceed under another chapter.

• Income below the state median: Form 122A-1 only
• Income above the state median: Form 122A-2 means test also applies
• Above-median income is a reason to look harder at Chapter 13, not an automatic no

What do Chapter 7 and Chapter 13 have in common?

Both start the same way and share several core protections and duties.

The District of Arizona's court pamphlet explains that filing under either Chapter 7 or Chapter 13 automatically stays or stops most collection actions against you. The Maryland court adds that while the stay is in effect, creditors cannot bring or continue lawsuits, make wage garnishments, or even make telephone calls demanding payment. That is the single most immediate practical effect of filing either chapter.

Both also require credit counseling before filing and a financial management course afterward, both require complete schedules of assets, income, liabilities, and creditors, and both involve a meeting of creditors under § 341(a). Both carry a codebtor dimension too, though only Chapter 13 has a dedicated codebtor stay in 11 U.S.C. § 1301.

And in both, secured debt behaves differently: the Arizona court is explicit that under either chapter you must pay debts secured by property if you want to keep the property.

Where do the two chapters differ most?

The largest difference is what happens to your property and how long the case lasts.

In Chapter 7, the Southern District of Iowa's instructions state plainly that the trustee may sell your property to pay your debts, subject to your right to exempt the property or a portion of the sale proceeds. Exemptions are not automatic — you must list property on Schedule C (Official Form 106C), and property you do not list may be sold with the proceeds paid to creditors. Chapter 13 instead uses a plan to pay creditors over time, which is why the Arizona court notes Chapter 13 can be used to cure defaults on secured debts, including home mortgages and vehicles.

Cost differs as well. The Chapter 7 filing fee is $245 (28 U.S.C. § 1930(a)(1)(A), (f)(1)) against $235 for Chapter 13 (28 U.S.C. § 1930(a)(1)(B)); both carry the same $78 administrative fee (Bankruptcy Court Miscellaneous Fee Schedule, Item 8), and Chapter 7 adds a $15 trustee surcharge (Bankruptcy Court Miscellaneous Fee Schedule, Item 9).

Does state law change how Chapter 7 works?

The chapter itself is federal and does not change from state to state. What changes is the exemption law applied inside it, and that matters a great deal, because exemptions decide how much of your home, vehicle, and household property stays out of the trustee's reach.

The Eastern District of Louisiana's official petition packet is direct about this: a debtor filing without an attorney must be familiar with the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, the local rules of the court where the case is filed, and any state exemption laws that apply. Four different bodies of rule, three of which are location-specific.

We publish verified exemption figures and median income data on the state pages rather than repeating them here, because a national page carrying one state's numbers is how people end up relying on the wrong figure. Start with your state hub, then your district.

• Federal: the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure
• District: local rules, local forms, and the practices of your bankruptcy court
• State: the exemption law that decides what property you keep

Why does the trustee matter so much in a Chapter 7 case?

The trustee is the person who actually looks at your paperwork and decides whether there is anything worth administering. That single judgment shapes almost everything else about your case.

The Maryland court explains the common outcome: in many bankruptcy cases involving liquidation of the property of individual consumers, there is little or no money available from the debtor's estate to pay creditors, so there are few issues or disputes and the debtor is normally granted a discharge without objection. Those are the no-asset cases.

When there is property to administer, more happens — the Southern District of Illinois warns debtors that non-exempt property, including some portion of income tax refunds related to pre-petition tax years, is property of the estate and must be turned over to the trustee. Disputes can also arise over who owns property, what it is worth, and whether specific debts should be discharged, and those are litigated in the bankruptcy court much like civil cases in district court.

• No-asset case: nothing non-exempt to sell, discharge usually unopposed
• Asset case: property, and sometimes tax refunds, are turned over to the trustee
• Contested matters are litigated in the bankruptcy court

What can go wrong in a Chapter 7 case?

Two things, broadly: the case can be dismissed, or the discharge can be denied or later revoked.

The Middle District of Alabama's pro se guide explains that a case is often dismissed when the debtor fails to do something required — failing to appear at the creditors' meeting, to answer the trustee's questions honestly, or to produce books and records the trustee requests. Dismissal matters because, as that guide states, upon dismissal the automatic stay ends and creditors can begin collecting again, and an order of dismissal by itself does not free a debtor from any debt.

Discharge is separate. Under 11 U.S.C. § 727(a) the court grants a discharge unless a listed ground applies — among them transferring, concealing, or destroying property with intent to hinder, delay, or defraud a creditor, failing to keep financial records, making a false oath, or refusing to obey a lawful court order. The Louisiana packet notes the same point in plainer terms: a judge can deny discharge if a debtor destroys or hides property, falsifies records, or lies.

• Dismissal usually follows a missed duty, and it ends the automatic stay
• Dismissal alone discharges nothing
• Discharge grounds are enumerated in 11 U.S.C. § 727(a)

Where should you start?

Start with the question that is actually keeping you up. This page is a map, not the answer.

If you are choosing between chapters, read the Chapter 7 vs. Chapter 13 guide and run the means test screener. If you want to know what the case looks like week by week, use the Chapter 7 timeline and the guide to what happens right after you file. If your worry is property, read the guides on no-asset versus asset cases and on what a trustee can sell, then check exemptions for your state. If you have filed before, the prior-filing timing tool is the right first stop, because a recent case affects how the automatic stay works.

Every bankruptcy court that publishes guidance for people filing without a lawyer also urges them to get one. The Eastern District of Michigan's guide states that the court strongly encourages individuals to seek the services of competent counsel and that bankruptcy proceedings are complex legal proceedings with long-term consequences.

• Choosing a chapter: the comparison guide and the means test screener
• Understanding sequence: the case timeline and the after-you-file guide
• Worried about property: asset vs. no-asset cases, then your state's exemptions
• Filed before: the prior-filing timing tool

Frequently asked questions

How long does a Chapter 7 case take?

The District of Maryland's court says it cannot predict when any individual will receive a discharge, but that in a typical Chapter 7 case it could be four to six months after filing the bankruptcy paperwork. Case length depends on whether the trustee has property to administer and whether anyone objects. The step-by-step timeline guide covers what happens in each of those months.

Will the trustee sell everything I own?

No. Only non-exempt property can be sold, and the Maryland court notes that in many consumer liquidation cases there is little or no money available from the estate to pay creditors. The Southern District of Iowa's instructions add that exemptions are not automatic: you must list property on Schedule C, and unlisted property may be sold with the proceeds going to creditors.

What does the Chapter 7 filing fee cost?

The statutory Chapter 7 filing fee is $245 (28 U.S.C. § 1930(a)(1)(A), (f)(1)), plus a $78 administrative fee and a $15 trustee surcharge. Courts commonly allow individuals to apply to pay in installments, and Chapter 7 has a conditional fee waiver under § 1930(f) for debtors who meet the Judiciary's criteria. Your court's clerk publishes the accepted payment methods.

Does filing Chapter 7 stop a wage garnishment?

Filing generally triggers the automatic stay, which the District of Maryland describes as preventing creditors from bringing or continuing lawsuits, making wage garnishments, or even calling to demand payment. There are limits. The Eastern District of Michigan's guide explains that if you had a case dismissed within the previous 12 months, the stay may last only 30 days, and after two such cases it may not take effect at all.

Are all debts wiped out in Chapter 7?

No. The Middle District of Alabama's guide states plainly that some debts are not dischargeable and others are not dischargeable under certain circumstances. The Southern District of Iowa lists examples including most fines, penalties and criminal restitution, debts arising from fraud or intentional injury, and debts not listed in your bankruptcy papers. The dischargeability guide covers this in detail.

Can I keep my car or house in Chapter 7?

It depends on your equity, your state's exemptions, and whether you keep paying. The District of Arizona's pamphlet is direct: under either chapter you must pay debts secured by property if you want to keep the property. Chapter 7 also offers redemption under 11 U.S.C. § 722 for certain household personal property, which requires paying the lienholder the allowed secured claim in full.

Do I need a lawyer to file Chapter 7?

The law permits individuals to represent themselves, and every court cited here publishes pro se guidance. Those same courts discourage it. The Eastern District of Michigan states that the court strongly encourages competent counsel and that chances of completing the process successfully are much greater with an attorney. Court clerks cannot give legal advice, including how to complete forms.

Sources

• 11 U.S.C. § 727 — Discharge · official source
• 11 U.S.C. § 541 — Property of the estate · official source
• 11 U.S.C. § 722 — Redemption · official source
• 11 U.S.C. § 1301 — Stay of action against codebtor · official source
• 28 U.S.C. § 1930(a)(1)(A), (f)(1) — Bankruptcy filing fees — Chapter 7
• 28 U.S.C. § 1930(a)(1)(B) — Bankruptcy filing fees — Chapter 13
• Bankruptcy Court Miscellaneous Fee Schedule, Item 8 — Administrative fee
• Bankruptcy Court Miscellaneous Fee Schedule, Item 9 — Chapter 7 trustee surcharge
• Bankr. D. Md. official page — Legal Overview — Legal Overview
• U.S. Bankr. Ct. D. Ariz., Choosing Your Chapter: What can Bankruptcy do for you? What will it do to you? — Choosing Your Chapter
• Bankr. S.D. Iowa official guidance — Instructions - Bankruptcy Forms for Individuals — Instructions — Bankruptcy Forms for Individuals
• Bankr. S.D. Ill. official guidance — Chapter 7 Case Success Requirements — Chapter 7 Case Success Requirements
• U.S. Bankr. Ct. M.D. Ala., Consumer Pro Se Debtors Guide — Consumer Pro Se Debtors' Guide
• Bankr. E.D. Mich. official guidance — A Guide for Pro Se Filers — A Guide for Pro Se Filers
• Bankr. E.D. La. official guidance — Chapter 13 Form Packet — Official Form 101 guidance for filers without an attorney

Related

• Chapter 7 vs. Chapter 13: how to choose
• The means test, explained
• Exemptions: what they protect
• The automatic stay
• Which debts get discharged
• Build your personalised roadmap